How do taxes apply to an S corporation?
Unlike a C corporation, which is a separate taxable entity from its owners, an S corporation is not. Thus, tax liability passes through the corporation to the individual shareholders - so the corporation does not pay any taxes on its corporate income and the shareholders simply pay taxes on their share of the corporate income (and similarly, each shareholder can deduct their share of any corporate losses).
You should be careful in this situation, however. While this is true for federal taxes and most state taxes, some states instead treat S corporations like C corporations, using the double taxation method.